Rene Obermann - Chairman and CEO
Karl-Gerhard Eick - CFO and Deputy CEO
Stephan Eger - Head of IR
Mathieu Robilliard - Exane BNP Paribas
Ric Prentiss - Raymond James
Nick Delfas - Morgan Stanley
Simon Weeden - Goldman Sachs
Graeme Pearson - Lehman Brothers
Randall Pollock - Vanguard
Peter Nielsen - Cheuvreux
Jacques de Greling - Natexis
James Ratzer - New Street Capital
Lrich Rathe - Dresdner Kleinwort
David Strauch - Oddo
Frank Rothauge - Sal Oppenheim
Francois Arth - Societe Generale
Hannes Wittig - JP Morgan
Mike Williams - Citi
Andrew Beale - Arete Research
Guy Peddy - Blue Oak
Laura Gentlums - UBS
Jonathan Dann - Bear Stearns
John Karidis - MS Global
Andrew Hogley - Execution
Deutsche Telekom AG (DT) Q3 2007 Earnings Call November 8, 1969 2:30 AM ET
This presentation contains forward-looking statements that reflect the current views of Deutsche Telekom management with respect to future events. They include statements as to market potential, the targets 2007 statements as well as our dividend outlook.
They are generally identified by the words expect, anticipate, believe, intend, estimate, aim, goal, plan, will, seek, outlook, or similar expressions and include, generally, any information that relates to expectations or targets for revenue, adjusted EBITDA, or other performance measures.
Forward-looking statements are based on current plans, estimates and projections. You should consider them with caution. Such statements are subject to risks and uncertainties, most of which are difficult to predict and are generally beyond Deutsche Telekom’s control, including those described in the sections “Forward-Looking Statements” and “Risk Factors” of the company’s Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission. Among the relevant factors are the progress of Deutsche Telekom’s workforce reduction initiative and the impact of other significant strategic or business initiatives, including acquisitions, dispositions and business combinations and cost-saving initiatives.
In addition, regulatory rulings, stronger than expected competition, technological change, litigation and supervisory developments, among other factors, may have a material adverse effect on costs and revenue development. If these or other risks and uncertainties materialize, or if the assumptions underlying any of these statements prove incorrect, Deutsche Telekom’s actual results may be materially different from those expressed or implied by such statements. Deutsche Telekom can offer no assurance that its expectations or targets will be achieved. Deutsche Telekom does not assume any obligation to update forward-looking statements to take new information or future events into account or otherwise.
Deutsche Telekom does not reconcile its adjusted EBITDA guidance to a GAAP measure because it would require unreasonable effort to do so. As a general matter, Deutsche Telekom does not predict the net effect of future special factors because of their uncertainty. Special factors and interest, taxes, depreciation and amortization, including impairment losses can be significant to the company's results.
In addition to figures prepared in accordance with IFRS, Deutsche Telekom presents non-GAAP financial performance measures, including EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, adjusted EBIT, adjusted net profit, free cash flow, gross debt and net debt. These non-GAAP measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS. Non-GAAP financial performance measures are not subject to IFRS or any other generally accepted accounting principles. Other companies may define these terms in different ways. For further information relevant to the interpretation of these terms, please refer to the chapter “Reconciliation of pro forma figures”, which is posted on Deutsche Telekom’s Investor Relations website at www.deutschetelekom.com.
At our customers' request, this conference will be recorded. Now, please listen to the reports of Rene Obermann and Dr. Karl-Gerhard Eick. Afterwards, you're welcome to ask your questions.
May I now handover to Mr. Stephan Eger.
Good afternoon, ladies and gentlemen. I would like to welcome you to our third quarter results conference call with our CEO, Rene Obermann, and our CFO, Dr. Eick.
With that, let me hand over to Rene Obermann to speak about the major developments in the quarter, as well as the progress on our strategy.
Thanks, Stephan. Good afternoon, ladies and gentlemen. As you can see from the results for the first nine months that we announced this morning, we are delivering on our strategy.
Group revenues are up by nearly 3% and international revenues by over 14%. Adjusted EBITDA of EUR14.7 billion means that we are well on track to achieve our full-year guidance.
Free cash flow in the first nine months of the year was EUR5.8 billion. Based on this strong performance, we have raised our full-year guidance to EUR6.5 billion. Although, adjusted EBITDA for the nine months was slightly down year-on-year, comparing Q3 2007 to Q3 2006, it has risen year-on-year for the second quarter in a row.
Net income to date is EUR1.3 billion on a reported basis and EUR2.2 billion, adjusted. The large decrease in net income is largely due to special factors and the first-time consolidation of PTC and tele.ring. Karl Eick will go into more details on these topics later.
On an adjusted basis, third-quarter net income was actually up year-on-year. Operationally, the business is clearly moving in the right direction. We have already implemented cost-saving initiatives of EUR1.4 billion.
In the fixed-line business, we are delivering on our broadband strategy and line losses and quality of service are moving in the right direction. In mobile, our objective of growing internationally is showing real progress. Note the acquisitions of Orange Netherlands and SunCom.
Our asset disposal program continues. As you will have seen, we announced, this morning, the sale of Media&Broadcast to TDF for an enterprise value of EUR0.85 billion. Let me go now into the detail of how we are delivering our focused fix and grow strategy.
I start with Germany and I would like to highlight six areas: broadband, line losses, PSTN line losses, triple play, quality measures, margins, and mobile customer growth. We have had an excellent quarter for DSL retail net adds where, with 480,000 net adds, our market share came in at 48%. So, we're well on course to achieve our target for the year of between 40% and 45%. We're looking here at long-term customers, because 80% of the DSL retail base, of our total DSL retail base, is now locked in through long-term contracts.
In triple play specifically, at the end of September, we had connected almost 50,000 customers. We have seen a particularly strong uptake since the launch of mass marketing of the new Entertain offers at the end of August.
We are also seeing an improvement in the run-rate for line losses. These are for the first time since Q4 2005 below 500,000, and they are now at a lower level than at any time in the last four quarters. If we turn now to our objective of improving service quality, you can see that we have been making very good progress since the strike ended in June.
The percentage of calls that are answered within 20 seconds is now at around 60%, and we're well on course to meet our guidance for the year-end of over 65%. We have also significantly reduced the order backlog.
Punctuality, however, stands about 70% at the moment. That line compliance is still below the target of 80%. In line with our objective of improving service levels, we are continuing to expand our own shop and distribution network. At the end of the third quarter, we had 720 shops, an increase of 45 shops in the third quarter alone.
Mobile contract net adds have risen sharply in the first nine months, increasing by almost 40% to nearly 580,000. Max flat customers, that's a flat tariff package, now number more than 800,000 in Germany, and the growth of these packages sold is accelerating with over 270,000 net adds in the third quarter.
Let me stress that, sequentially, we improved the adjusted EBITDA margin at T-Mobile Germany from 36.5% to 37.7%. The improvement in contract minutes of use per customer that we mentioned in Q2 does continue. These increased by 10% in the first nine months.
Finally, let me just remind you that we have the exclusive rights to the revolutionary iPhone in Germany. This goes on the sale starting midnight. Let me move onto the second strategic area, which is: growth internationally with mobile. We had a very good first nine months.
Revenue growth for the international mobile operations is strong, up over 14% year-on-year and adjusted EBITDA is even stronger, an increase of 23% and that's even with the weaker U.S. Dollar.
Growth was supported by the first consolidation of PTC and of tele.ring. Contract net adds have risen by 3.7 million in the first nine months and now number more than 57 million of our total mobile customer base, which is approximately 114 million.
There have been two important acquisitions in the past quarter, Orange in the Netherlands and SunCom in the United States. Orange Netherlands we bought for EUR1.3 billion and it will be consolidated as of the beginning of October.
It significantly improves our position in the Netherlands. It means there will be now three, rather than four players in the market, and we are the number two player now behind the market leader, KPN. We're looking at net present value synergies here of about EUR1 billion, after restructuring charges and an annual run-rate of synergies of around EUR160 million. It will be adjusted EBITDA-accretive as of 2008, free cash flow-accretive in 2009, and EPS-accretive in 2010.
In the U.S., we announced the proposed acquisition of SunCom. SunCom is a regional GSM carrier with operations primarily in the Carolinas and Puerto Rico and with more than 1.1 million customers.
This acquisition fits neatly into the current footprint of T-Mobile USA, increasing its operations to 98 of the top 100 markets, up by 11 markets compared to the present footprint. Under the agreement, we will pay $1.6 billion for the outstanding common shares of SunCom.
In addition, we will assume $0.8 billion of net debt for a total enterprise value of $2.4 billion or EUR1.7 billion at the current exchange rate. We expect to realize significant synergies with a net present value of approximately $1 billion.
The closing is expected during the first half of 2008 and on October 26, we received antitrust clearance. The transaction remains subject to SEC approval, SunCom shareholder approval, and other customary closing conditions.
The U.S. business has had an excellent year-to-date. In dollar terms, service revenues have improved by over 17% and adjusted EBITDA by over 14%. The adjusted EBITDA margin improved slightly to 28.3% in the first nine months. In the third quarter, the margin amounted to almost 29%, up close to 1 percentage point from Q3 '06.
We continue to see a strong ARPU development. Blended has risen to $51 in the first nine months, and Contract is even up from $56 to $58 year-on-year. Over the same period, Contract churn is down and is now below 2% on average in the first nine months. In the third quarter, Contract churn was seasonally up from the second quarter, but still significantly down year-on-year from Q3 2006.
Net adds for the years are now at 2.7 million, of which now almost three-quarters are Contract. In the third quarter, the prepaid share of net adds was up compared to the second quarter due to the popularity of the new FlexPay without Contract offering. However, Contract net adds still amounted to 65% of total net adds in the quarter.
MyFace continues to be an important driver of the U.S. business. More about this in a moment, but let me also mention the successful launch of the HotSpot@Home offering. Towards the end of September, we launched the first PDA with HotSpot@Home service, the BlackBerry Curve with UMA interface.
The UK business has also had a good first nine months. Service revenues are up by nearly 12% and adjusted EBITDA by over 30%. We've seen strong improvements in margins, in ARPU and in Contract net adds.
The adjusted EBITDA margin has risen by 4.2 percentage points to over 24%, while in the third quarter specifically, it was at over 29%. Blended ARPU in the UK has risen from EUR28 to EUR31, and Contract ARPU from EUR65 to EUR67. Contract net adds of 44,000 in Q3 compare with negative Contract net adds of 16,000 in the same period last year.
One of the drivers of the UK business has been the attractiveness of the Flext tariffs. The number of Flext customers, has doubled in the past year and now stands at 2 million.
If we move now to the third element of our strategy, to mobilize the Internet and use Web 2.0 services to increase usage, let me just highlight, first, the very strong growth in data revenues up by 30% at nearly EUR4 billion overall and by over 46% in Euro terms in the U.S. In U.S. specifically; second, non-message data revenue growth, this grew by 42% in the first nine months to EUR1.4 billion; third, UMTS data volumes, which increased by 57% between quarter two and quarter three alone; fourth, the strong growth in web'n'walk and MyFace customers, plus of course the rights to the iPhone in Germany and the Open Handset Alliance with Google and others in our industry.
As you know, this was announced on Monday with 33 leading industry partners. We see this as an exciting opportunity to launch robust wireless Internet and Web 2.0 services for T-Mobile customers in the United States and in Europe in 2008. Web'n'walk customers in Europe are now at over 2.8 million, which is an increase of close to 50% over the number at the end of 2006, growth accelerating quarter-by-quarter in 2007.
In the first nine months, non-voice revenues, excluding messaging, rose by over 40% to EUR760 million in Europe compared to the same period last year. MyFace in the U.S. has now achieved a total number base -- total customer base of 3.6 billion customers. Remember that MyFace was launched at the beginning of the fourth quarter last year, so within the first year in the U.S., we were able to achieve 3.6 million customers for this innovative service with an identical unique user interface across the entire handset portfolio of T-Mobile USA.
Non-voice revenues, excluding messaging, in the U.S. have now gone over EUR700 million, an increase of 43% over the comparable period last year. We successfully launched MyFace in Germany and in the UK a few weeks ago. This is a good example of how our European operations benefit from our experience in the U.S.
Let me move now to the fourth component of our strategy, which is network-centric ICT services. As you know, network-centric ICT services are the cornerstones of DT's future corporate customer business and the successful sale of Media&Broadcast supports this focus further.
We are very pleased that we now have a new CEO in charge of that division, Reinhard Clemens, who will be joining us from EDS on December 1.
Recent business highlights include the second large outsourcing deal, which we have won in the UK this year with Royal and SunAlliance, and a strong increase in the number of dynamic services projects in the German mid-sized company market, where we have acquired more than 30 new customers in the quarter.
With regards to the system integration activity, it is our strong belief that we can only reach real long-term international critical mass and competitiveness through pursuing the partnering approach further and with this in mind, we talk with potential partners and will continue those talks until we find a good solution.
Let me conclude with those comments, with some comments on the outlook. We are now very confident that we will meet our adjusted EBITDA guidance for the year of around EUR19 billion. Free cash flow for the year we now expect to be significantly higher than our original guidance at around EUR6.5 billion. We had previously said around EUR6 billion.
For 2008, we would like to be prudent at this stage because of the Dollar developments, the ongoing still-difficult German market environment with heavy competition and regulation, and the need to invest in 3G in the United States and also to invest in VDSL. As a result, we expect adjusted EBITDA and free cash flow in 2008 to be around this year's level. This is after allowing for the consolidation of Orange Netherlands and the deconsolidation of Media&Broadcast.
Let me emphasize that, in light of our strong balance sheet, a positive net income and our strong free cash flow generation, Deutsche Telekom remains committed to an attractive dividend policy for our shareholders.
I will handover to Karl now to go through the financials in more detail. Thank you.
Thank you, Rene. I will provide you with some more details on the financial performance of the Group and the divisions. In particular, I will spend some time in discussing the various factors impacting net income.
Starting with Group financials, revenues grew by 2.8% to EUR46.7 billion in the first nine months of 2007. This, again, is the result of strong growth outside Germany, up 14.4% in the first nine months, combined with shrinking domestic revenues, down 6.9%.
Revenue growth was supported by the first-time consolidation of PTC, tele.ring and Gedas and negatively impacted by the deconsolidation of Club Internet and Ya.com and the U.S. dollar development. At a constant exchange rate, revenues for the first nine months would have been approximately EUR0.8 billion higher, which would have led to a total revenue growth of 4.4%. The shrinking domestic revenues also impacted adjusted EBITDA, which decreased by 1.1% to EUR14.7 billion. The third quarter, however, adjusted EBITDA actually increased by 0.6% to more than EUR5.1 billion.
This was the second quarter in a row that adjusted EBITDA has increased year-on-year. Again, at a constant exchange rate, adjusted EBITDA in the first nine months would have been approximately EUR250 million higher, which would have led us to precisely the same amount as last year. Adjusted net income decreased by 27.5% to EUR2.2 billion. The effects of purchase price allocation in connection with the full consolidation of PTC and tele.ring contributed to this decrease, I will come back to this later.
[Currently], in the third quarter, adjusted net income increased by 6.9% to EUR1.1 billion. Finally, free cash flow, adjusted for Centrica, increased by 52% to EUR5.8 billion. This impressive performance was due in part to a reversal in income taxes paid. I will also come back to this later. Third-quarter free cash flow alone amounted to EUR3.6 billion, more than double the equivalent figure in '06. Let me remind you again of the impact of the U.S. Dollar on Group revenue and adjusted EBITDA.
Assuming that the U.S. Dollar-Euro exchange rate stays at the current level of approximately 1.45 in '08, the total impact on Group revenues since year-end 2006, where the U.S. Dollar was on average at 1.26 until the end of '08, would be approximately EUR2.3 billion, and the impact on adjusted EBITDA would be approximately EUR0.7 billion.
Turning now to the divisions, in broadband fixed network, the revenue and adjusted development was impacted by the deconsolidation of Club Internet and Ya.com in June and July respectively. During the first half of '07, these two companies contributed EUR0.2 billion in revenues and minus EUR0.1 billion in adjusted EBITDA. Therefore, the deconsolidation had a negative impact on revenues, but a positive impact on adjusted EBITDA. This can be seen in the third quarter results. Whereas total revenue has decreased 7% during the first nine months, that decreased by 8.8% year-on-year in the third quarter. Adjusted EBITDA declined by 14.9% in the first nine months, but in the third quarter, the decrease was only 11.9%.
Overall, domestic revenues decreased by 8% to EUR15.1 billion in the first nine months. This was impacted by further line losses, price declines, and the migration from billed minutes to flat rates within the complete packages. Domestic adjusted EBITDA decreased by 18.3% to EUR5 billion, this was impacted mainly by the revenue decline and the market invest to increase the percentage of customers under Contract.
The success of save-for-service cost-cutting program is reflected in the quarterly adjusted EBITDA results. This can be seen most clearly if you look at the numbers on a like-for-like basis that is excluding Club Internet and Ya.com. In the third quarter, both total and domestic revenues increased compared to the second quarter. At the adjusted EBITDA level, we have seen similar sequential improvements from the second to the third quarter. Overall, domestic revenues have stabilized at around EUR5 billion per quarter this year, while domestic adjusted EBITDA has stabilized, at just under EUR1.7 billion per quarter.
In mobile, we saw a continuation of the positive development in the first half of the year. Overall, customers grew organically by almost 10% to approximately 114 million with particularly strong growth in the U.S. and Eastern Europe. Revenues also grew by almost 10%. Even so, the contribution of T-Mobile U.S. was held back by the development of the U.S. Dollar exchange rate. The consolidation of PTC and tele.ring contributed almost EUR1.6 billion to the revenue increase, but we also saw strong revenue growth, in terms of Euro terms, in the UK and across Eastern Europe.
Adjusted EBITDA grew even more strongly by 12.3% to EUR8.2 billion. The consolidation of PTC and tele.ring contributed EUR570 million to this increase. The UK saw a particularly remarkable adjusted EBITDA development with an increase of more than 30% to EUR0.9 billion in the first nine months. And the Netherlands and the Eastern Europe operations also saw strong adjusted EBITDA improvements. Business customer trends were essentially unchanged with however an improving adjusted EBITDA trend in the third quarter. Overall, revenues decreased by 7% to EUR8.8 billion in the first nine months. This decrease was due in particular to decreasing internal revenues resulting from the IT cost cuts imposed.
External revenues decreased to a lesser extent by 3.1% to EUR6.6 billion. This decrease in external revenues resulted in particular from lower revenues in telecommunications services in the business service area driven by the decline in legacy services. Adjusted EBITDA decreased by EUR0.2 billion or 18.3% to EUR0.8 billion. The absolute decrease was significantly smaller than the decrease in total revenues of almost EUR0.7 billion, reflecting the progress the division has made in improving its cost base.
In the third quarter, adjusted EBITDA decreased by 9.3%. The adjusted EBITDA margin improved to 10% in the third quarter from 9% in the first quarter and 9.5% in the second quarter. After this overview of the financial performance of the divisions, let me discuss the headcount reductions and cost savings in more detail. Our domestic headcount reduction is well on track. As of the third quarter, the net domestic headcount reduction amounted to 8,100 employees in '07. In terms of the 32,000 program, we have now reduced the gross headcount by 23,000 employees, which means that we are more than two-thirds along the way. Further reductions are already in the pipeline, approximately 1000 contracts for early and partial retirement and severance programs were [assigned] as of the end of September '07.
In October '07, we signed a strategic partnership with Nokia Siemens Networks. As part of this partnership, we expect to transfer Vivento Technical Services, or VTS, which currently employs approximately 2,000 employees, to Nokia Siemens Networks at the turn of the year.
With regards to save-for-service, we are on track to achieve the targeted EUR2 billion gross cost savings in '07. As of the first nine months, we had achieved EUR1.4 billion of actual savings. Furthermore, measures for an annual total of EUR1.8 billion had already been implemented. More than half of the actual savings came from BBFN.
Looking at the development of the cost base in the first mind months, the benefits of the save-for-service program are clear. As a result of inorganic growth, namely PTC, tele.ring and Gedas, the cost base increased by EUR1.2 billion. This was partially offset by foreign exchange effects, primarily due to T-Mobile U.S., amounting to EUR0.5 billion on a net basis.
Higher market spend in the U.S. and Europe increased the cost base by EUR0.9 and EUR1.3 billion respectively. These increased costs, however, were significantly offset by the cost savings from save-for-service of EUR1.4 billion. Overall, the cost base increased by EUR1.5 billion in the first nine months of '07, taken as a whole, the market invest in Europe was more than offset by the save-for-service program.
Looking more closely at the cost savings of BBFN in Germany, we were able to keep the actual cost base stable in the third quarter compared to the second quarter, despite continued market invest. This resulted in the net cost savings of EUR0.3 billion. For the full year, we anticipate that we will be able to achieve the targeted EUR0.9 billion net cost reduction. Remember that in the fourth quarter of '06, we had a significant increase in market invest in connection with the launch of the new bundled tariffs.
We do not anticipate a similar increase this year. This and divisional cost savings, namely personnel costs, IT, consulting and other cost items, should result in an essentially stable cost base in the first quarter, implying net cost savings of EUR0.6 billion in the fourth quarter and EUR0.9 billion for the full year.
Let me make a few remarks on our assets disposal program as well. We continue to make good progress. In the third quarter, we received the cash for Ya.com of EUR0.3 billion. And this morning, we announced the sale of Media&Broadcast to TDF for an enterprise value of EUR0.85 billion. We expect to close this sale at the beginning of '08. In total, we have sold to-date assets with an enterprise value of a EUR2.1 billion. The significant increase in cash flow was due to a number of factors, which more than compensated for the increase in restructuring payments to EUR1.3 billion in the first nine months.
First, we received a net refund in income taxes of EUR0.4 billion this year, compared to a net payment of EUR1 billion in the first nine months of '06. Second, net interest payments decreased to EUR1.9 billion from EUR2.2 billion in the first nine months of '06. Third, cash CapEx decreased by EUR0.6 billion to EUR5.3 billion. Two-thirds of this decrease in cash CapEx came from broadband fixed network, due to lower VDSL CapEx in particular, with the remainder coming essentially from the mobile division. Including the proceeds from the disposal of assets and adjusted for Centrica, free cash flow before dividends increased by more than EUR2 billion or 52% to EUR5.8 billion.
Let me emphasize, in this context, that our new '07 guidance of EUR6.5 billion is equivalent to a free operational cash flow of EUR8 billion, as the EUR6.5 billion is after projected full-year restructuring payments of EUR1.5 billion.
Coming to reported net income, here we saw a decrease of EUR1.3 billion in the first nine months of '07, compared to EUR4.1 billion in the first nine months of '06. This significant decrease was caused by a number of ordinary and special effects. First, depreciation and amortization increased by EUR0.5 billion due to the consolidation of PTC and tele.ring. Of this about, EUR0.4 billion was due to purchase price allocation, namely the write-down of brand names in customer bases. Second, net financial expense in '06 has benefited from a gain from a sale of Circom in Malaysia. Third, income taxes in '07 were impacted by a non-cash write-down of deferred tax assets of EUR0.7 billion in connection with the '08 corporate tax reform.
We had flagged this, which is non-cash, at the time of the half-year results. Due to the reduction in corporate tax rates, the net present value for future savings from tax loss carry forwards, among others, has been reduced. We took this charge in the third quarter. In contrast, '06 income taxes had benefited from a tax gain in connection with the net operating losses in the U.S. of EUR1.3 billion. Since the vast majority of the decline in reported net income was due to special factors, net income adjusted for special factors decreased to a more, smaller degree. It amounted to EUR2.2 billion in the first nine months of '07, compared to EUR3 billion in the first nine months of '06. About EUR0.4 billion of this decline was due to the effect of PTA in connection with a consolidation of PTC and tele.ring, as I mentioned already. Looking at the third quarter of '07 alone, adjusted net income actually increased by 6.9% to EUR1.1 billion.
Turning to the next slide, you can see the differences between adjusted and reported net income explicitly. Just to mention the main special factors, reported EBITDA includes EUR0.4 billion of restructuring charges. Reported depreciation and amortization includes a goodwill reduction at T-Mobile Netherlands of EUR0.2 billion, which was offset by an equivalent tax gain. Let me be clear that this goodwill reduction is not the result of an impairment test but is due to the [acceleration] of deferred tax assets on tax loss carry forwards, which we acquired in connection with the purchase of (inaudible) in the Netherlands and which we are regarded as not likely to be realized at the time of that acquisition.
Reported income taxes includes the EUR0.7 billion write-down on deferred tax assets in connection with the '08 corporate tax reform, which was partially compensated by exceptional tax gains amounting to EUR0.5 billion primarily at T-Mobile, Germany. In this context, let me mention that Deutsche Telekom performed its annual, goodwill impairment tests at September 30. These tests did not result in any impairment of goodwill for any of the Group assets.
Finally, our balance sheet continues to remain in excellent shape. Compared to the end of June, net debt decreased by almost EUR4 billion as a result of the strong free cash flow and an EUR0.4 billion foreign exchange gain. Dealing improved to 0.8 times from 0.9, and the exit ratio to 38.2% from 37.9%. Please note that, at the beginning of the fourth quarter, we paid EUR1.3 billion for the acquisition of Orange Netherlands. Therefore, based on our new free cash flow guidance, net debt should increase slightly in the fourth quarter.
With this, Rene and I are now ready for your questions.
Thank you, Dr. Eick. I think we should start right away with the Q&A session. The operator will start with some initial remarks on how to handle the session.
Thank you very much, Mr. Eger. The question-and-answer session will be started now (Operator Instructions). Mathieu Robilliard from Exane BNP Paribas.
Mathieu Robilliard - Exane BNP Paribas
Yes. Good afternoon. I had two questions, please. First, in terms of the mobile revenue line in Germany, there was some deterioration in the service revenue growth, which was minus 5 versus minus 3 in the previous quarters. Could you give us a bit of color as to what is behind that deterioration? Is it pricing trends? Is it a lesser growth of usage? And what should we expect for the fourth quarter of this year in terms of general trends?
The second question has to do with M&A. There has been recurring press comments about potential interest of Deutsche Telekom in assets throughout Europe. I mean, I don't know, at this stage how precise you want to be. But maybe you could give us a little bit more color in terms of what kind of assets you would be looking at in general in mobile Europe and what kind of assets you certainly wouldn't be interested in? Thank you.
Yes, let me answer that quickly. Mobile revs have been affected in this quarter for the first time with the roaming price decreases, which were imposed on the industry and that hit the market and it hit us, it's a double-digit impact.
And also, pricing overall in German mobile minutes came down further quite aggressively. Minutes of use were up, actually, 10% year-on-year, so we do see both. We see fast price decreases. It's sort of expected, isn't it? And we also see minutes of use uptake.
So, still the outlook is, at some stage, I guess elasticity will reach the inflection point, but as we talked about a few months ago, that may still be a little bit of time ahead, but I'm overall still optimistic that there is more minutes to come in Germany.
M&A? Look, I can repeat what I've always said, will be continued discipline in execution and we will always apply strict financial discipline. And the first thing is intra-market consolidation. As you've seen, we've executed, within very few months, two examples of that strategy.
And then, of course, we would not rule out any adjacent markets or any other markets at this point in time. Just please bear in mind, we are financially disciplined and we will continue to keep strict financial discipline. We’re not making any stupid moves here.
Ric Prentiss from Raymond James, may we have your question please?
Ric Prentiss - Raymond James
Yes, good afternoon. A couple of questions for you on the U.S. wireless business, if I may? First, the economy here in the U.S. has been a little rough lately. Just wonder if you're noticing anything in either your third quarter net adds, which looks pretty good, but as you look into fourth quarter, as far as concerns on the economy or subprime issues here in the United States.
Then a second question: as you look to clear the spectrum from Auction 66, how much CapEx should we be looking at next year to start rolling out that service? Is there some kind of CapEx per population number we should be thinking about? Thank you.
We've seen continued strong growth in Q3, even comparison to last year. The business growth, the customer growth was stable, although not stable, even a little better than last year.
I think, growth since last year was slightly beyond 800,000; this year in Q3 it was 857,000. Contract ratios were still strong, so we don't see a big impact on our business from the sub-prime consumer maybe a slowdown here, but maybe it's a little early to tell. But I would not be in a position to say we are very concerned about this at this point in time.
Business is still going on strongly and of course, we will do our best to keep that up. When it comes to CapEx overall, you've heard us forecasting, from a Group level for next year, very strong cash flow on a higher level than expected for this year.
We'll continue this level into '08, even though we do invest a little more next year, particularly in 3G in the U.S., as well as in VDSL and in broadband overall, and in new service platforms. So, therefore, expect our cash flow to be on a strong level, around the level of this year at least.
Mr. Nick Delfas from Morgan Stanley, may we have your question please.
Nick Delfas - Morgan Stanley
Thanks very much. I've got several questions. First off all on taxes, could you just let us know what you think your effective tax rate as a Group should be in the future, assuming full payment of taxes, excluding the tax credits you have?
So just to try and understand, whether we should be reducing your tax rate to 30% or somewhere between 39% and 30%. Secondly, what are your expectations for the timing and quantum of the mobile termination rate cuts for 2008 in Germany?
And lastly, on Slide 24, you talked about net OpEx savings and the target of EUR0.9 billion and that you've achieved EUR0.3 billion in the first nine months. I don't quite understand how you get that figure, could you just talk about how you calculate the EUR300 million? Because if I look at the difference between revenues and the difference between EBITDA in the nine month finally; you get about less than EUR200 million reduction. And then that will help us understand what you're planning for Q4. Thanks very much.
Well, perhaps I’ll start with your first question, Nick, which was about taxes and the question about the effective tax rate. On a longer-term and a longer perspective, a normalized effective tax rate on the Group level should be somewhere, let's say, between 35% and 37%, not to be seen next year. And I think one always has to keep in mind that our cash taxes paid are for a very long time going to be strongly below that number.
OpEx numbers, well, I tried to explain, in my presentation, that the OpEx savings on a net basis at BBFN totaled EUR0.3 billion. I also tried to make it clear that this reduction, in comparison to the last quarter of the last year is going to strongly increase. The reduction to the last quarter of last year is going to strongly increase, due to the fact that OpEx strongly increased in the fourth quarter and in the last year, due to the increase or due to the new introduction of our new bundled tariffs.
We have seen a strong OpEx increase in the fourth quarter of last year, which we're not going to see in the fourth quarter of this year. The OpEx space in BBFN is going to be more or less stable with a consequence that we're very confident that our net OpEx reduction in BBFN will totally amount to EUR0.9 billion.
Now, there is clearly good explanations from our cost definitions for that. First and foremost, we now see the positive impact when it comes to OpEx development out of the new agreements with unions due to the in-sourcing and due to the salary reduction.
We also see the positive effects of the lengthening of the weekly working hours. We see nice reduction in marketing expenses by say, EUR0.3 billion. All that together, I think, finally will lead to this net OpEx reduction of EUR0.9 for full year.
On the MT fee cuts, the last year's cuts were in the vicinity of 10% or 11% even. When it comes to '08, there is no final regulatory decision yet. We have what we believe provisioned reasonably high in our forecast for next year, in our budget for next year, so I do not think we will be surprised or caught by surprise with higher than expected termination rate cuts.
May I ask you please to restrict to one question only, as we've got a lot of questions in the pipeline, please? Thank you.
Mr. Simon Weeden from Goldman Sachs, may we have your question please.
Simon Weeden - Goldman Sachs
Yes, you may. I'm just trying to select my chosen question. I'm going to ask on the dividends, if you don't mind, whether you would consider that your form of words on the dividend would incorporate a flat dividend year-over-year, or perhaps we could be expecting to announce this year, an increase? Thanks.
Obviously, at this point in time, we can't make any committal statements here on dividends, because that is subject to the [GREMIA], but I think we've been loud and clear in saying, the management team is very committed to a good dividend policy for our shareholders.
We understand the importance of the dividends. Obviously, we believe we've increased our substance in the business by providing better than expected cash flow, by also showing a good trend on the operational side.
So, all I can say is, we remain committed to a very attractive dividend policy and everything else will follow as soon as we can say something more specific.
Mr. Graeme Pearson from Lehman Brothers, may we have your question please.
Graeme Pearson - Lehman Brothers
Yes. Thanks, good afternoon. I just wanted to return to the CapEx question that was asked earlier. It looks like you spent less than 5% CapEx to revenues in German mobile in the first nine months of the year and that's despite completing the first phase of the upgrade of the GSM network.
So, the question is what do you think is a sustainable level of CapEx going forward in mobile these days? And also, can you comment on how much spare capacity you have on the network in Germany regarding traditional voice, but also given the significant ramp in data which is starting to come through? Thank you.
Look, on the CapEx level for mobile Germany, we've been achieving so much more in terms of building new sites, replacing old stuff equipments i.e. with the latest moves we made on enhancing it by EDGE and so forth. We've done so many things and we have the leading network in Germany, and our CapEx level has been always at a very good ratio.
And, we think, we're going to be, more or less, in the same ballpark in the future, and yet we will upgrade our network further and will build further HSDPA capabilities and so forth. So, we feel quite good about it, not so much because of the absolute numbers, but because of increased CapEx efficiency. We get so much more for the dollar than we used to get a few years ago.
This goes along with a good feeling about our network here in Germany. I think we have still enough capacity for the time being to handle the traffic. I think, on average, the used capacity in our network is somewhere between 50% and 60%. That's on average.
You always have your peaks, but that's nothing where we would say we expect a significant increase of our CapEx spending to increase the capacity of our German network.
Mr. Randall Pollock from Vanguard, may we have your question please.
Randall Pollock - Vanguard
Thank you. Would you be willing to let your bond ratings decline in order to make a significant acquisition?
Well, bond ratings: that's always an issue. We have always made it clear that we don't want to be, we do always want to have undisputed access to the capital markets. Unrestricted access to capital markets means strong ratings.
Strong rating also was A, BBB minus. This was always our guidance. Again, the reason behind is unrestricted access to the capital markets. We see some pressure from the rating agencies already because some of the rating agencies are looking at us with a negative outlook.
I think we are very confident to stabilize our today's rating on the basis of our free cash flow in a third quarter. But again, we do want to be strong when it comes to our rating, which means A minus or BBB plus.
Mr. Peter Nielsen from Cheuvreux, your question, please.
Peter Nielsen - Cheuvreux
Thank you, Peter Kurt Nielsen from Cheuvreux. Question related to the domestic BBFN business, please. I appreciate you do not give divisional guidance, but clearly in your outlook for 2008, the domestic BBFN business is a crucial part.
Could you potentially sort of share bit of your thoughts on how you see this business developing in 2008? Also, included today's comments on the current stabilization of revenues and EBITDA in that business? Thank you very much.
I will answer your question in a more strategic way because we are still not intending to give divisional outlooks. But look, we've been year-on-year, we've become so much stronger in our competitiveness because, by making more customer-oriented offers, packages, bundles, double-play, we've increased the number of customers on DSL who can not churn, because we've prolonged their contracts.
Now, 80% are in longer-term contracts. We've increased our distribution capacities and our access to the market. We work on our cost positions. Now, clearly, the PSTN line losses, to some extent, will continue. I don't expect them to go down significantly, to be honest to you, but we will try and step-by-step compensate at least to a good extent by increasing our DSL numbers and keeping a high share in DSL, and by additional services.
So, overall, I don't want to be overly enthusiastic here; I think that would be unreasonable. But I see there's a good trend, particularly when it comes to broadband, and we will continue that trend.
Mr. Jacques de Greling from Natexis, may we have your question please.
Jacques de Greling - Natexis
Thank you. I just would like to have a specific figure, either in percentage or in amount, of the EBITDA in terms of EBITDA impact for the roaming regulation for the European mobile assets for 2008. Thank you.
It's a double-digit number; that's as specific as I want to be on the topic. It's a double-digit number. It has an impact on the bottom line this year, and it will have also an impact on the bottom line. Next year, it's well within our guidance, though. It's one of the factors, which we need to factor in for next year.
Again, when it comes to '08, we just want to be prudent at this point in time. We know we have a couple of factors to deal with next year and the last thing we wanted to disappoint you guys. So, we will be prudent. We have everything factored in we believe we can factor in and let's see how it goes.
Mr. James Ratzer from New Street Capital and your question please.
James Ratzer - New Street Capital
Yes, thank you. I had a question just regarding the cost base within BBFN. You've given guidance for this; you have EUR900 million reduction. I was wondering: if you could help us in terms of what we should be thinking for next year? I mean: do you think you can do another EUR900 million reduction in the business?
And if I could just have a very quick second question: could you tell us what the EBITDA is at the Media&Broadcast business that you've sold is? Thank you.
Well, let me start with the EBITDA in Media&Broadcast. EBITDA in Media&Broadcast is slightly below 100. That's why we think it was a good price and a good consideration we have achieved.
Now, when it comes to your first question with cost reduction, OpEx reduction out of sales for service, altogether for next year, we have foreseen EUR0.8 billion cost reductions, which bring the program up from EUR2.0 billion we have seen in this year to EUR2.8 billion.
Clearly, a significant impact or the significant part of this additional OpEx savings of EUR0.8 million will come out of BBFN, and I would say perhaps 50% or so will be contributed out of BBFN.
Mr. Lrich Rathe from Dresdner Kleinwort, may we have your question please.
Lrich Rathe - Dresdner Kleinwort
Good afternoon. I have a question regarding your very successful share of the broadband net adds. Do you feel there's sort of an end at some point? I know your guidance for 2007 is only 40% to 50% of the market there.
But: do you sort of foresee an end to that? Do you foresee a time at which point you might turn a more friendly face towards the broadband resellers and to leave them a bit more in the market for regulatory or other reasons? Thank you.
There is a very simple answer to your question. No, we will continue to work hard on our market share in retail. Frankly, resellers are welcome to partner with us, but we will not give up our competitive position.
This would be strategically wrong and long-term financially also wrong because, when the market grows, you don't want dozens of competitors to develop strength. In fact, we want to develop our own strength and our own market position, and that will help us financially long-term. So we will keep track.
However, there are competitive responses and there are always slight ups and down with share, so you shouldn't expect all the time up 50% or so, but our strategic target is between 40% and 45% for this year. Maybe we can do a little better even next year; we will see.
Mr. David Strauch from Oddo, may we have your question please.
David Strauch - Oddo
Hello. Concerning your guidance of about EUR19 billion for 2007, it means that the EBITDA should be around EUR4.3 billion in Q4. That would mean something EUR250 million below Q4 '06. If I look at Q3 '07 it was stable compared to Q3 '06, is there any reason to expect a year-on-year decrease in Q4, or is it just that you are cautious?
Well, as Rene Obermann has already mentioned, we do want to be prudent. Guidance in terms of EBITDA is approximately 19. We are very confident that we're going to make it. That's why I think the calculation you have made is clearly supporting it, which was also the reason that we have seen a very strong free cash flow and that's also the reason why we've increased our free cash flow guidance.
Mr. Frank Rothauge from Sal Oppenheim, may we have your question please.
Frank Rothauge - Sal Oppenheim
Hi, my question is related to T-Systems. Now, as you have a new Chief Executive for T-Systems onboard, when are you able to share with us a clear strategy for T-Systems going forward after partnering strategy which you announced previously you have not been able to realize that? Thank you.
Yeah, Mr. Rothauge. Let me take that question. I think the strategy has been announced very clearly. It has two aspects. Number one aspect is, we position T-Systems as the leading player in the European market when it comes to ICT services, which are services that are more network-centric, and value-added services on top of the pure connectivity, i.e. hosting, security, call center solutions, et cetera, et cetera.
We are not going to be on our own, in the future, sufficiently successful in software development for a whole range of applications, which are outside of our core business and therefore, we're trying to find a partner for that space. As you have noted and rightly pointed out, partnering for the division is not trivial, because the division is very large and therefore it takes time.
We obviously have to take a number of interests here into account. We can't do a quick and dirty solution; we don't want to. And therefore, we try and find a long-term, sustainable solution. Reinhard Clemens now, our new CEO for that division being on Board.
He will continue to sort of sharpen our position vis-à-vis the system integration business, and he will update you in due course. But I would actually push back a little bit on the fact that we haven't positioned the company. In fact, we are winning deals again. We've been successful recently in hosting deals and in outsourcing. So I think the company is getting positioned, it takes a little time. It's a big elephant. As you know, we had no leadership for quite a while on that division from the industry. And therefore, give us a little bit of time. We will do our job.
Mr. Francois Arth from Societe Generale, may we have your question please.
Francois Arth - Societe Generale
Yes, good afternoon. I just have one question on the UK. Basically, you showed a very strong recovering margin. The question is: is that sustainable in Q4 and even in 2008? Or: do you expect Q4 to be tough, as it probably will be? But 2008, 29% seems to be very high. Basically: how do you explain it? And: what do you expect for the future?
No doubt the UK market is competitive, but as you see, we've increased customers and improved margins, and improved ARPU and so forth. So, we just, I think worked for quite some time on the attractiveness of our offerings.
And so we expect Q4 always to be a little dominated by Christmas, seasonal impacts. But overall, I can't and I would not predict any major deterioration on the UK at this point in time, but we also don't guide on a specific country-by-country level per division here. Thank you.
Mr. Hannes Wittig from JP Morgan, may we have your question please.
Hannes Wittig - JP Morgan
Yes. Good afternoon. Thank you. I have a question regarding your cash flow guidance for next year. In particular, I would like to know: what you have provisioned for any potential expenditure on spectrum, be it in Germany, the U.S. or in the UK? At the same time may I ask for: a little bit of an update on your thinking regarding the U.S. 750 mega hertz auction that is coming up in January?
Hannes, I'm sorry. We can't give any information on this topic, even if we'd loved to, but we can't. Sorry for that.
Mr. Mike Williams from Citi, may we have your question please.
Mike Williams - Citi
Yeah. Good afternoon. Most of my questions have been asked, but perhaps a question on the outlook for domestic mobile. E-Plus has indicated it wants to double its revenue share to Germany targeting 25% share overtime, and talking about a pretty aggressive pre-Christmas campaign.
I wonder how you think about: the competitive dynamics of the domestic mobile market over the next 12 months, from a strategic perspective in terms of issues: such as pricing trends, SAC and those sorts of issues? Thanks very much.
I think the German trend has been already triggered towards drastic price decreases. Two years ago, or two and half or maybe not much almost three years ago, but increase in the last 12, 18 months through the introduction of all these second brands and retail brands such as [RD] and alike.
So I do not expect any major change to the trend in Germany, because average minute prices are still, in comparison to other markets, on a fairly high level. But as we've discussed I think several times now, the average minute price decline will, at some stage, lead to more uptake on the minutes.
Yes, minutes use is only 10% up, but I think we will come closer to another 50 points no overtime. So, I don't expect any major change to the German competitive dynamic. I also expect us to maintain our position. We've been strengthening our position on, for instance, by selling more max packages, big bundles, very successfully.
So that's where the focus is. And then Congstar again, entering the prepay field, fishing in the pond of low frills or no-frills [FIN] customers. So, for us: no major change. We will continue to defend our position and work on our margins. As you see, our margins have gone up slightly.
Mr. Andrew Beale from Arete Research, may we have your question please.
Andrew Beale - Arete Research
Hi, I've got a question on '08 guidance and EBITDA. I just wanted to check: whether you're roughly flat? I mean: my understanding of the definition is that it excludes the EUR100 million from Media&Broadcast you sold, it includes Orange Netherlands and uses, I think, the first: the average of the exchange rates in the first three quarters of about 1.37.
But doesn't include any contribution you might get from SunCom. I'm just wondering: whether you think your roughly flat allows for the current spot rates, 1.46, 1.47? And, also, if you could tell me: what the CapEx and revenue from Media&Broadcast were? Thank you.
Well, your view of the content of our guidance is correct. SunCom is not included due to the fact that we do not know when we get regulatory approval. It's clear we do not know when we're going to see a first consolidation here. Yes, we have taken the average Euro U.S. dollar exchange rate as the basis for our planning, which also means that we will see and will have to see how the average Forex is going to develop.
And clearly, it has an impact. That's why we have said we're going to be in the same magnitude with our EBITDA guidance for next year. When we come back to Media&Broadcast, as I have already mentioned, the EBITDA contribution of Media&Broadcast was slightly below 100 and the same is true for the CapEx spending.
Mr. Guy Peddy from Blue Oak, may we have your question please.
Guy Peddy - Blue Oak
Yes, good afternoon. Just almost following on from Andrew's question, your CapEx is down about 10%, 11% this year. Can we assume that that sort of follows through for the rest of the year? And, also, next year: I think you suggested that CapEx would be up a little bit, but given the OBIDA you're expecting to be flat. And this year you've had a very substantial tax credit.
I'm just trying to work out: how you'll get to flat free cash flow next year, unless you're assuming also another great big tax credit? Could you just talk us through some of the underlying assumptions for working capital on tax and things like that? Thank you.
Excellent question, Guy! Yes, you are right. We will, first and foremost, see, as always in the last quarter, a stronger CapEx coming in, which means that our CapEx will be somewhere, say between approximately 7.5, perhaps a little bit higher. That's what we would expect in terms of CapEx for this year. And yes, we are going to see a smaller CapEx increase.
And yes, we are not planning a cash tax refund for next year as well, which really opens the question: how to stabilize our free cash flow? There is two good reasons, first and foremost, EUR1.3 billion of severance payments we will see for full year this year are going to be nicely lower. And on the other side, we will continue our work on with our working capital management. Then last but not least, we're going to see what we have to pay in terms of cash taxes.
Clearly, we're not planning for a cash tax refund again, but it's always difficult to anticipate where cash taxes are going to be. Altogether, we are very confident that we can meet the same free cash flow number next year as we have seen this year.
[Mrs. Laura Gentlums] from UBS. May we have your question please?
Laura Gentlums - UBS
Thanks very much. Good afternoon. I had a quick question on BBFN, please. It looks like, on the calling revenues [it's very] high margin of course, the major drag has been price declines for just over the last year, which has been running at a rate of more than 20%. Do you think these price declines are going to slow any time soon, particularly given that a lot of your peers across Europe seem to be taking advantage of price increases in the (inaudible)? Thanks very much.
Yes, I don't think we can assume major declines in the short term. The move here is going towards packages, so in the past, it was more variable costs which were charged. Now customers are more and more accepting or adopting tariff packages, bigger bundles.
That's also our strategic goal it’s really to sell bundles here in fixed-line as well as mobiles. So, overall prices per unit may decrease, but we will work against that by selling bigger and bigger bundles for DSL and voice and various services.
Mr. Jonathan Dann, from Bear Stearns, may we have your question please?
Jonathan Dann - Bear Stearns
I mean, it's a very straightforward one. T-Mobile Germany it looks like you've had relatively limited data per user graph where as in all the other countries, data per user or data per SIM card has gone up a lot. Can you talk us through what's happening?
I think the prime reason for that is the high number of machine-to-machine SIMs prepay and the fact that prepay as such has, in general, in the industry, a fairly high inactivity rate, particularly in Germany. That's due to the legal requirements and the ability to deactivate passive SIMs. So I think that's a little the picture gets a little distorted because of that effect.
Mr. John Karidis from MS Global, may we have your question please?
John Karidis - MS Global
Hello there, thanks very much. I just really wanted to complete the picture of the exceptional impacts on the guidance for 2008 at the EBITDA level. So, you talked about the EBITDA contribution for Media&Broadcast being slightly less than EUR100 million.
What would be the contribution from OrangeNetherlands? Simply to get an impression of what the underlying guidance is? Please.
John, the positive contribution from OrangeNetherlands is more or less the same amount to what I've described in Media&Broadcast. So, it's also a little bit below 100, which means that Media&Broadcast and OrangeNetherlands are contemplating each other.
Again, in our guidance, we have for good reasons, not included any effect out of the first consolidation of SunCom.
Mr. Andrew Hogley from Execution, may we have your question please?
Andrew Hogley - Execution
Hi, Good afternoon, gentlemen. If we can go back to BBFN the improvement in line loss and other things is encouraging. I was wondering that has been an [limit there on naked] DSL with respect of issues next year this has been any indications on pricing yet for that product.
Andrew, could you repeat your question? It's very hard to understand you.
Andrew Hogley - Execution
The question was about: naked DSL. Is there any indication on pricing for that product in Germany next year?
No, we don't have any indications that it has, but in our plan for next year, I think we've been prudent in forecasting all of these effects. Also, by the way, we'll also provide products based on naked DSL ourselves, I guess, in the timeframe of CeBIT, so we will respond to competitive moves there, and it's factored in.
Ladies and gentlemen, the conference is about to end. Should you still have several questions, we kindly ask you to contact me or our Investor Relations department.
[Mr. Stefan Fretter], may we have your last question, please?
Yes, good afternoon. Last question, on ratings again you've already outlined that you intend to keep a very strong rating in the A minus, BBB plus rate range. But on an annual basis, your leverage is well below your target range of two to three times net debt to EBITDA.
Can we expect, going forward, maybe a deliberate move into that range? And: would that possibly be the to the extent that you do something which pleases the shareholders? Thank you.
Nice try to asking about the share buyback. Well, first and foremost, I think the point already I've made and the ranges now we have given, are unchanged for a very long time.
Yes, we always have considered: how to make use of the financial flexibility we are having in the best interest of all of our shareholders? But I think everybody knows, out of all the conversations we have now and we had now for a very long time, that we are as forced as management Board of this company, not too much in favor of share buybacks if this is not supporting other interests of Group development.
So, thanks a lot for participating in the conference call. We very much hope to hear each other again on the fourth-quarter results. Good-bye.
We would like to thank you for participating at this conference. A recording of this conference will be available for the next seven days by dialing Germany 496992053333. I repeat Germany 496992053333. We are looking forward to hear from you again. Thank you and good bye.